How Long Must You Live in Texas to File Bankruptcy Here?

Bankruptcy is Available Immediately, with Only Some Limited Conditions

Bankruptcy is federal law, so there is no waiting period to file bankruptcy after moving from one state to another.

However, even though bankruptcy is federal law it incorporate state laws in many ways.

Probably the biggest practical way state laws matter in bankruptcy is with the property exemptions you are allowed to use. Exemptions are the amount of your possessions and real estate that are protected from creditors.

So the main condition to filing bankruptcy in Texas right away after moving here from another state is that you have to use your previous state’s property exemptions for a certain length of time.

A second condition, which doesn’t doesn’t apply to most people, is that you have to wait a period of time before you can buy a home in Texas and get full use this state’s generous homestead exemption.

There’s more about these two conditions below.

In most other respects a new resident of Texas is treated in bankruptcy court just like a long-time resident.

One example is how the “means test” is applied. The means test determines whether a person is allowed to file a 3-4 month long Chapter 7 “straight bankruptcy” case or instead required to file a 3-to-5 year long Chapter 13 “adjustment of debts.” That test uses median income amounts that differ state to state, as well as expense allowances some of which differ county by county or even by census district. These income and expense amounts apply to all local residents no matter how long they have been in Texas.

Applying the Prior-State Property Exemptions

Under Section 522(b)(3)(A) of the Bankruptcy Code, when you file bankruptcy in Texas you must use the property exemptions available to residents of the state you moved from as long as you have not yet lived in Texas for 730 days (two years) before filing bankruptcy. It doesn’t matter whether those prior-state property exemptions are better or worse than the ones available to Texans, you are stuck with using them for 2 years.

The overall purpose of this law seems to be to discourage people to move to states that have better property exemption laws just to file bankruptcy there. Since Texas has relatively generous exemptions, this law seems to be sensibly designed for Texas.

However, most people filing bankruptcy don’t tend to have more assets than would be protected by the exemptions of the state where they moved from. So this condition to filing bankruptcy in Texas would not make any difference to them.

Limitation on Use of Texas Homestead Exemption

Besides having relatively generous property exemptions overall, Texas has a particularly generous homestead exemption. It is one of the only states in the country with a homestead exemption that is unlimited in dollar amount (limited only by acreage, the amount depending on whether it’s urban or rural). So this separate limitation on the homestead exemption on relatively recent purchases of homes could be particularly important here in Texas.

The law, found at Section 522(p) of the Bankruptcy Code, essentially says that the maximum homestead exemption amount is $155,675 (instead of being unlimited) if the home was acquired in the 1,215-day period (about 3 years and 4 months) before filing bankruptcy. There’s an exception if the equity used to acquire this home came from a prior home in Texas. (Note that this dollar amount will likely be increased for inflation in April 2016.)

Practically speaking, most people who have recently moved to Texas and are contemplating bankruptcy either have not purchased a home here, or if they did they do not have that much equity in it. If so, this condition will not affect them. The condition would likely affect relatively few new Texas residents, only those who have recently sunk a lot of out-of-state home equity in a Texas home.

If you now live in the Dallas-Fort Worth Metroplex and moved to Texas relatively recently, I can help you consider and, if appropriate, file bankruptcy here in Texas. My name is Carrie Weir and I’m a Texas bankruptcy attorney serving the Metroplex, especially the area around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, and Rowlett. Please get in touch with me for a free and confidential consultation so that you can make informed choices about your debta and assets, and the rest of your financial life. Please call 972-772-3083 or use the contact form here. Thank you for checking out my website.